Citi and TIS partner on cash forecasting and working capital efficiencies for treasurers - Industry roundup: 15 March
by Ben Poole
NAB completes world-first with cross-border stablecoin transaction
NAB has completed an intra-bank cross-border transaction using NAB-issued stablecoin, which it says is a world-first by a major financial institution on a layer-one public blockchain.
This public and permissionless Ethereum blockchain pilot transaction involved deploying stablecoin smart contracts for seven major global currencies. The pilot’s success demonstrates the potential to cut cross-border transactions from days to minutes and brings NAB one step closer to enabling clients who operate in multiple jurisdictions and currencies a more straightforward and faster experience, starting with corporate and institutional clients.
Drew Bradford, Executive General Manager, Markets, NAB, said the bank is investing in developing a simple and secure digital asset ecosystem: “We are committed to pursuing the right digital asset opportunities with clear customer benefits. Bringing multi-currency stablecoins to market demonstrates NAB’s focus on simplifying international banking protocols to increase speed and transparency while lowering costs and reducing complexity for customers.”
NAB’s Australian stablecoin, AUDN, which will be fully backed one-for-one with the Australian dollar and managed as a bank liability, will be the cornerstone for the bank's ambitions in digital assets. In addition, transacting on a public, permissionless layer-one blockchain will allow for greater transparency, accessibility and scalability.
NAB has partnered with technology providers Blockfold and Fireblocks for this pilot to build and deploy its stablecoins. This includes leveraging their expertise for smart contract creation, securely minting and burning its stablecoin and managing the direct custody of the digital assets on the blockchain technology.
NAB aims to enable transactions across seven globally utilised currencies: Australian, New Zealand, Singapore and US dollars, Euro, Yen and Pound Sterling. The bank expects to support select corporate and institutional clients to transact using digital assets by the end of 2023.
Citi and TIS partner on cash forecasting and working capital efficiencies for treasurers
Corporate treasuries and finance teams face multiple challenges driven by fragmented technology infrastructures, numerous ERP Systems, incomplete data, and inefficient manual processes. To help resolve these challenges, Citi is working with TIS, a cloud-based provider specialising in cash forecasting and working capital solutions for CFOs, treasurers, and finance teams, to provide an automated digital treasury solution.
Companies may effectively track, aggregate, classify, and analyse vast amounts of financial, cash, and payments data across their global banks, entities, vendors, and partners using TIS. With access to this data, companies can get deeper insights into their needs and realise the promise of fully automated treasury operations.
Citi’s global network and cash pooling solutions are designed to work seamlessly with TIS’ analytics and forecasting tools to help improve corporate cash and working capital management. Citi and TIS aim to advance the smart treasury journey from historical reporting to predicting liquidity and working capital through a fully automated, integrated, and intuitive workflow.
Citi and TIS can help companies automate the aggregation and analysis of their global banking, treasury, sales, AP/AR, and P&L data to maximise the accuracy and completeness of their cash forecasts. At the same time, treasury can use advanced, smart-logic-enabled tools to evaluate their data and identify gaps in reporting to improve accuracy over time. Analysing the cash flow data captured by TIS can help uncover unique supplier or vendor payment behaviours, invoicing cycles, and liquidity trends across the business. It can also help companies determine how these behaviours and cycles are evolving.
Mastercard and Infinios partner on MENA’s first wholesale travel programme
Mastercard and Bahrain-based fintech Infinios Financial Services have announced a strategic partnership to advance the digitisation of business-to-business travel payments between travel buyers and suppliers through the first Mastercard Wholesale Program launch in the Middle East and North Africa region. The collaboration aims to enhance liquidity for travel suppliers, such as travel agencies, through greater transaction flexibility, transparency, and security.
Infinios will deploy the Mastercard Wholesale Program, a virtual card-based B2B payment product, to its travel industry customers using its proprietary technologies to help them secure, streamline, and automate B2B travel transactions. The combined solution has been specifically designed for and with the travel industry, addressing the lack of visibility, control, and protection associated with manual payment methods still rife across the sector.
The adoption of card payments continues to support recovery for the travel economy. This collaboration will see Infinios use Mastercard’s dynamic and transparent pricing structure tailored specifically for industry distribution, market, and currency needs. The partnership aims to enhance significant B2B travel payment flows and bring the travel ecosystem closer together to accelerate sustainable growth across the travel value chain.
According to Mastercard’s Economic Outlook 2023, experiences currently fare better than goods in terms of spending, given the continued pent-up demand for travel and shifts in consumer preferences worldwide. As organisations across the ecosystem re-evaluate their payment strategies and operational priorities to drive sales and growth, the Mastercard programme uses virtual card technology to deliver multiple benefits. Over 400,000 travel merchants are already using the proposition.
Khalid Elgibali, Division President, Middle East and North Africa, Mastercard, said: “As consumers regain the confidence to seek out and book travel experiences, legacy B2B payment processes threaten to hold the industry back. It is now vital that organisations across the sector consider how their payment strategy can secure growth and improve liquidity. Innovation must play its part in ensuring that travel payments are not only simple and convenient but, even more importantly, flexible and secure.”
ECB and European authorities call for enhanced climate-related disclosure for structured finance products
The European Supervisory Authorities (ESAs) and the European Central Bank (ECB) have published a joint statement on climate-related disclosure for structured finance products. The statement stresses their joint approach to the transition towards a more sustainable economy within their respective mandates.
As investment in financial products meeting high environmental, social and governance (ESG) standards is increasingly important in the European Union (EU), it has also become a priority for structured finance products to disclose climate-related information on the underlying assets. The European Securities and Markets Authority (ESMA), with the contribution of the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the ECB, is therefore working towards enhancing disclosure standards for securitised assets by including new, proportionate and targeted climate change-related information.
In the statement, the ESAs and the ECB also call on issuers, sponsors and originators of such assets at the EU level to proactively collect high-quality and comprehensive information on climate-related risks during origination. This call for improved disclosure concerns all funding instruments backed by the same type of underlying assets.
Securitisation transactions are often backed by assets that could be directly exposed to physical or transition climate-related risks, such as real estate mortgages or auto loans. Since the value of these underlying assets could be affected by climate-related events, the ESAs and the ECB believe that reporting on existing climate-related metrics needs to improve, and that additional metrics are necessary. Additional climate-related data will allow investors to identify climate change-related risks better while avoiding over-reliance on estimates from external sources.
The statement also covers the various initiatives the ESAs and the ECB are engaged in to support better and targeted disclosures for structured finance products. For example, the ESAs have been developing advice and Regulatory Technical Standards under the EU Taxonomy Regulation and the Sustainable Finance Disclosure Regulation. They are also reviewing the Sustainable Finance Disclosure Regulation (SFDR) Delegated Regulation to enhance ESG disclosures by financial market participants, including requiring additional disclosures on decarbonisation targets.
Enhanced climate-related disclosure requirements for securitised assets are also essential to the ECB. In July 2022, the ECB announced that it was taking further steps to include climate change considerations in its purchase programmes and collateral framework with the aims of better taking into account climate-related financial risk in monetary policy implementation and – within its mandate – supporting the green transition of the economy in line with the EU’s climate neutrality objectives.
The ESAs have also been developing templates for voluntary sustainability-related disclosures for “simple, transparent and standardised” (STS) securitisations. In March 2022, the EBA also provided guidance on how ESG standards could be implemented in the context of securitisation.
ESMA is undertaking a review of the loan-level securitisation disclosure templates. This review is not only aiming to simplify the reporting templates where possible, but is also considering the opportunity of introducing new, proportionate and targeted climate change-related metrics that will be useful for investors and supervisors. The new metrics must meet investor needs, considering existing market practices and the reporting standards stemming from the relevant EU legislation (the EU Taxonomy Regulation, the SFDR and the forthcoming EU Green Bond Standards). This requires engagement with both originators and investors and also with the relevant regulatory bodies to achieve an effective and proportionate approach.
Finally, the introduction of new climate change-related disclosure requirements for securitisations may also become relevant for similar funding instruments backed by the same type of underlying assets, such as covered bonds. Consistent and harmonised requirements for these instruments are necessary for adequately assessing and addressing climate-related risks and would ensure a level playing field across similar asset classes, foster comparability for investors and facilitate equal treatment by EU supervisors. The ESAs and the ECB said in the statement that they are committed to supporting the comparability of future disclosure requirements within their respective mandates.
February’s UK PMI data finds improved performances across regions
February’s regional Purchasing Managers’ Index (PMI) data from NatWest indicated a better month for business activity across the UK, albeit with those in London enjoying the most substantial growth. Underlying demand perked up in almost all areas, leading to generally higher optimism among firms. On the price front, charges for goods and services continued to rise sharply across the board, despite signs of easing cost pressures.
A PMI reading above 50 signals growth, and the further above the 50 level, the faster the expansion signalled. February saw a rise in business activity across all but one of the regions and nations monitored by the survey. The North East was the only exception, although output here did at least stabilise after a seven-month sequence of contraction (index at 50.0). London (56.0) recorded the strongest activity growth by far, registering its best performance since last July, with the South East (53.3) a distant second.
The data showed signs of improved demand across almost all parts of the UK in February. Inflows of new work rose everywhere except in Wales, although even here they at least moved closer to stabilisation. London saw the most robust growth in new business, followed by the East of England and the West Midlands, respectively.
February also saw a broad-based cooling of input cost inflation faced by UK businesses, albeit with rates remaining firmly above their long-run averages in all areas. The most marked slowdown was in the North East, while the North West recorded the joint-weakest overall rate of cost inflation together with the East of England. London, meanwhile, topped the rankings for the first time since July 2019.
All areas of the UK once again registered a sharp rise in average selling prices in February, as businesses often looked to shift some of the burden of higher costs onto customers. The steepest increase was observed in the South East. That said, here and in most other areas, rates of output price inflation eased compared to January. The only exceptions were the North West, London and East of England.
The number of areas recording an increase in employment rose from seven in January to ten in February, with the South West, East of England and Scotland each seeing renewed job creation. Northern Ireland was at the top of the rankings for workforce growth for a second straight month. Further decreases in employment were recorded in Wales and the North East. Five of the 12 monitored areas recorded increases in outstanding business in February. By far the most marked rise was in London, where growth hit a five-month high, while only marginal increases were seen in Yorkshire & Humber, East of England, South West and Northern Ireland. At the other end of the scale, firms in Wales recorded the steepest drop in backlogs of work by some margin.
There was an improvement in business confidence in two-thirds of areas in February. The most marked upswings in sentiment were in Northern Ireland and Scotland, although these remained towards the bottom end of the scale for overall levels of optimism. Expectations were highest in the West Midlands, as in January, and lowest in the North East, which saw confidence wane slightly.
ING takes next step in aligning oil and gas portfolio with climate goals
One year ago, following the net-zero pathway laid out by the International Energy Agency (IEA), ING became the first significant global bank to stop providing dedicated finance to new ‘upstream’ (exploration and extraction) oil and gas fields. Now the bank has announced it is expanding this approach to other parts of the oil and gas value-chain by restricting dedicated finance to ‘midstream’ (oil & gas infrastructure) activities that unlock new oil and gas fields, also aiming to reduce the volumes of the traded oil and gas it finances.
ING says that its energy strategy balances three interests: the need to decarbonise to fight climate change, the need for energy to remain affordable for people and companies, and the need to ensure the security of the energy supply. To achieve this balance in a society that’s still dependent on fossil fuels, the bank says it sees its role to keep financing what the world needs today while at the same time supporting the transition to the low-carbon economy of the future.
While continuing to finance clients active in the oil and gas sector, ING says it is aligning its portfolio with the International Energy Agency’s (IEA) ‘Net-Zero Emissions by 2050 Roadmap’ and the climate science that underpins the IEA’s approach. The bank reports it is currently on track to reduce its upstream oil and gas portfolio by 19% by 2030, in line with the IEA’s pathway, aiming for a 53% reduction by 2040 compared to 2019. By the end of the year, ING also wants to adopt a ‘net zero by 2050’-aligned methodology for midstream oil and gas infrastructure such as pipelines, liquified natural gas terminals and storage facilities.
Having focused on the part of the value chain responsible for the most prominent climate impact - upstream oil and gas - ING is now including its Trade and Commodity Finance business in its approach to reduce the combined volume of traded oil and gas it finances by the same reduction targets it is committed to for upstream lending – minus 19% by 2030 in line with IEA pathway. Here, because of exposure to fluctuations in the market prices of oil and gas, the bank intends to set its reduction targets based on volumes financed. The bank says it will reach out to experts and peer banks to co-develop a methodology supporting this approach.
The bank also announced it will publish Trade and Commodity Finance targets in 2024. These will be aimed at reducing physical volumes and aligned with the IEA Net Zero pathway.
Finastra and Uni Systems extend risk management regulation collaboration
Finastra and Uni Systems have extended their partnership to help financial institutions in the Adriatic, Central and Southeast Europe regions comply with the Basel Committee's Fundamental Review of the Trading Book (FRTB) reporting requirements, effective in 2025. Under the new agreement, Uni Systems can offer its customers Vector Risk's Trading Book Market & Credit Risk Solution, via Finastra's FusionFabric.cloud and hosted on Microsoft Azure, for cloud-based automation of credit and market risk calculations in the trading book.
The FRTB is a comprehensive suite of rules proposed by the Basel Committee on Banking Supervision (BCBS) that capital banks must hold against market risk exposures. It expands the current market risk framework to ensure that internal models used by banks to calculate capital requirements efficiently cover risks, and to simplify comparisons of risk-based capital ratios across banks.
Trading Book Market & Credit Risk is a SaaS solution providing out-of-the-box connectivity with Finastra's treasury and capital market solutions, standard market data packages and institutions' internal data. It automates the standardised approach for counterparty credit risk (SA-CCR), Value at Risk (VaR), Potential Future Exposure (PFE), credit valuation adjustment (CVA) and others that will follow. Uni Systems provides strategic guidance, project management and technical execution.
“Complying with regulations such as the FRTB is a big undertaking for banks, particularly when timeframes are tight and IT systems cannot support the necessary changes,” said Benoit Riquet, CPO, Treasury & Capital Markets at Finastra. “By partnering with Uni Systems and offering Vector Risk's solution via our platform, more banks will benefit from ongoing upgrades and regulatory compliance, quickly, with reduced project risk and without the need for new IT infrastructure.”
Gauging the limited impact of the energy crisis on Swiss industry
The latest edition of the Credit Suisse Monitor Switzerland report for Q1 2023 finds that, thanks to robust consumption, Switzerland is not at risk of recession. Nevertheless, economic growth is slowing significantly compared to last year. Credit Suisse economists forecast gross domestic product (GDP) growth of 0.8% in 2023, compared to 2.1% in 2022. With inflation set to remain above the target range until mid-2023, the Swiss National Bank (SNB) is likely to raise key interest rates to 2.25% overall. Although the energy crisis is having a noticeable impact on some energy-intensive sectors, in-depth analysis shows that the overall effect on Swiss industry is less significant compared to other European countries.
The outlook for private consumption in Switzerland is supported by a consumer-friendly situation in the labour market. The unemployment rate is at its lowest level in over 20 years, while high levels of job security are having a positive influence on consumer sentiment. In addition, Switzerland is continuing to experience brisk levels of immigration.
At the same time, the surge in inflation is restricting consumers’ purchasing power; a 2.3% increase in employee pay therefore failed to offset the loss of purchasing power caused by inflation running at 3.2% in the second half of 2022. A real decline in the total wage bill has been an extremely rare occurrence in the last 30 years and the decrease is set to continue in the first half of 2023. As a result, overall consumer growth will be significantly weaker this year than in 2022 (1.4% versus 4.0% last year). From mid-2023 onwards, inflation will return to the 0% to 2% target range set by the SNB, partly because the central bank will have raised its key interest rate to 2.25% (inflation is forecast to average 2.2% in 2023).
Meanwhile, the country's export sector is being hit by sluggish demand from abroad. Nevertheless, some of these growth-inhibiting factors have eased somewhat lately. The lifting of Covid-19 restrictions in China will boost economic growth there in the first half of 2023, and this will also positively impact the rest of the world in the second half of the year. In addition, the euro zone will probably be able to avoid a recession given that the energy situation has improved slightly. At the same time, high inflation and the interest rate reversal are placing tight constraints on global growth for the time being.
Although the Credit Suisse Export Barometer – which measures economic performance in key destination markets for the Swiss export sector – has recently brightened again slightly, PMIs for industry are still below the growth threshold virtually across the board. The PMI for Swiss industry was also below the growth threshold in February for the second consecutive month – albeit not by much in comparative terms. Despite this, an easing of the purchasing situation is underway, with only 5% of companies in Switzerland reporting longer waiting times than in the previous month. This is significantly less than in the first half of 2022 when over 80% of companies repeatedly reported longer delivery times. The increase in exports as well as capital spending on machinery and exports, is likely to be below average this year at 3% and 1%, respectively.
Although the worst-case energy shortage scenario was avoided this winter, the risk is set to increase again next winter. Compared to its European counterparts, Swiss industry as a whole is better positioned to withstand the energy crisis successfully. The country has a lower degree of energy intensity, energy accounts for a smaller proportion of total costs, while the local sector mix also works in Switzerland’s favour. Potential vulnerabilities arise indirectly due to the dependence on imports in the value chain as well as in energy supply. It is worth noting that energy intensity in Switzerland and Europe has generally decreased significantly over the past 20 years and will continue to decline in the future due to the pressure caused by the energy crisis.
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